Just found a great resource for troubleshooting webdeploy issues from Visual Studio. This article even had my same exact error message in the IIS MWSVC log. I was getting a 404.7 which is a file extension denied by server configuration error. Going back to the web deploy setup and installing the full web deployment handler feature AND then restarting the web deploy service fixed the issue.

http://learn.iis.net/page.aspx/1182/troubleshooting-web-deploy-problems-with-visual-studio/